Exposure Draft Issued Proposing Revisions to Compilation and Review Standards

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Via the AICPA

Based on recommendations form the Private Company Practice Section Reliability Task Force, the exposure draft includes three proposed standards:

– Framework and Objectives for Performing and Reporting on Compilation and Review Engagements

– Compilation of Financial Statements

– Review of Financial Statements

The full text of the exposure draft can be found here.

The PCPS task force recommended revising the standards to allow an accountant to issue a review report in situations where the accountant’s independence is impaired in connection with the performance of a nonattest service relating to the design or operation of an aspect of internal control over financial reporting.

According to the Journal of Accountancy article, significant changes to the standards would include:

  • – The introduction the new terms such as moderate assurance, review evidence and review risk to the review literature to harmonize with international review standards.

  • – A discussion of materiality in the context of a review engagement.

  • – A requirement that an accountant establish an understanding with management regarding the services to be performed through a written communication, that is, an engagement letter.

  • – The establishment of enhanced documentation requirements for compilation and review engagements.

  • – Guidance for practitioners who are engaged to perform a compilation or review engagement when they have also been engaged to perform nonattest services.  The guidance includes reporting requirements for instances in which the accountant’s independence is impaired due to the performance of these services.

  • – The ability for an accountant to include a general description in the accountant’s compilation report regarding the reason(s) for an independence impairment.

Barry Melancon, president of the AICPA, has issued a brief explanatory video here.

The comment deadline is July 31 and the proposed effective date fo the changes is for financial statements for periods on or after December 15, 2010.

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